Recent developmental efforts have been directed towards using smart cards as vehicles for the storage and transfer of money. Using electronic money in place of conventional bills and coins is advantageous for several reasons. It is often cumbersome and inconvenient to carry around large amounts of money, notwithstanding the ever-present risk of theft or loss. Bills and coins are expensive to produce, and are subject to forgeries. Although some merchants may accept personal checks, the processing of these transactions often proves to be very time-consuming. In practice, existing check verification procedures often involve a time delay sufficient to annoy, irritate, and/or frustrate customers who are waiting in line at the merchant's point-of-sale terminals.
With existing state-of-the-art technology, it is possible to use smart cards as devices on which to electronically store and transfer money. However, a system which does nothing more than electronically store and transfer money is not practical for use in many real-world applications. As with any electronic data storage and transfer system, security breaches are possible. If the concept of electronic money is ever to be generally accepted, electronic money cannot be lost by the application providers or by other participants such as merchants or customers. Although a certain amount of electronic money loss is acceptable and inevitable, these losses must be less than the current losses experienced with credit cards, cash, or checks. Prior-art electronic security measures do not provide an electronic money system having the requisite level of security.
Existing smart card devices are not completely invulnerable to failure. For example, the smart card holder could forget to remove the smart card from his or her pocket, and run the card through an entire washer/dryer cycle, exposing the card to heat, mechanical vibrations, water, and chemically corrosive agents such as bleach and detergent, which could result in a smart card failure. Upon device failure, the hapless smart card holder ends up losing the amount of money stored on the now-defunct card. What is needed is a recovery technique applicable to smart cards that have become inoperable, so that the smart card holder does not suffer a financial loss due to card failure.
Many state-of-the-art electronic financial transaction systems offer little or no customer privacy. This lack of privacy stems from the fact that current system architectures offer paid interest and/or protection for lost/stolen cards. As a result, those customers who desire privacy must pay in cash in order to attain transactional anonymity. Since conventional paper money offers virtual anonymity, the concept of electronic money should provide a similar degree of anonymity. At the very least, an electronic system should provide anonymity upon customer request.